No parity, yet

March 12, 2015 09:30 AM

The euro extended gains against the dollar on Thursday after surprisingly weak U.S. February retail sales data, recovering from an earlier 12-year low in Asian trade.

Since the start of the year the euro has suffered a 12% decline, careening toward parity with the greenback as monetary policies in Europe, and elsewhere around the world, ease. This is in contrast to stronger U.S. economic growth and expectations the Federal Reserve will start raising interest rates later this year, attracting cash seeking higher returns.

While that trend remains intact, the dollar weakened after a report detailed a surprising 0.6% drop in U.S. retail sales amid harsh weather in February versus expectations for a gain of 0.3%.

"I think we're finally seeing some early signs of fatigue in the dollar's rally," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.

"Caution is on the rise ahead of next week's Fed meeting. On the one hand, steady job growth has many expecting the Fed to lay the ground work for an eventual rate hike. But this rapid rise in the dollar could warrant a warning from the Fed as a potential threat to growth," he said.

The euro rose 0.668% to $1.06175 on the EBS trading platform, recovering from an earlier low of $1.0494, its weakest since January 2003.

The European Central Bank's launch of a €1.1 trillion bond-buying program this week has dented the euro's appeal by driving yields of many euro zone bonds to all-time lows.

A 10-year German bond yields 0.23% versus 2.06% on a benchmark 10-year U.S. Treasury.

The euro rose 0.30% to 128.50 yen while the dollar fell 0.44% to 120.92 yen.

"Unless we get protests from other trading partners about a weakening euro, I think the trend will continue. There have been some noises from the U.S. but as long as the Europeans are happy with the currency weakness, the euro can go down further," said Yujiro Goto, currency analyst at Nomura.

New Zealand's dollar gained 1.6% against the U.S. dollar after the Reserve Bank of New Zealand sounded less dovish than markets had positioned for and kept interest rates steady at 3.5%.

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